Abstract
This study examined the impact of fuel pump price adjustment and the causal relationship between fuel pump price adjustments and economic growth in Nigeria using secondary data extracted from the Central Bank of Nigeria annual report and National Bureau of Statistics publications spanning from 1980 - 2019. Descriptive statistics, unit root test, Johansen cointegration test, VECM and Granger causality test were employed to analyse the data. The result showed that a 1% increase in the prices of PMS and AGO increased economic growth by 0.014%, 0.038% and 0.018% respectively while AGO is reduced by 0.002%. Also the prices of PMS, AGO and DPK does not granger cause economic growth in Nigeria within the period under this study meaning that any macroeconomic policy that affects economic growth should be pursued independent of fuel pump prices as any policy aimed at influencing economic growth through pump price adjustments seems to be ineffective.
Keywords: Premium motor spirit, Dual purpose kerosene, Automotive gas oil, Economic growth, Petrol pump price, Economic growth, Pump price adjustment.
JEL Classification: A19; E20; O10.
Received: 4 August 2021 / Revised:8 September 2021 / Accepted: 24 September 2021/ Published: 18 October 2021
Contribution/ Originality
This study is one of very few studies which have investigated the impact of fuel price adjustments on Nigeria’s economic growth, with data covering various government regimes up to 2020. The linear model allowed us to introduce an index called index of labour input proxied by exchange rate – EXR.
1. INTRODUCTION
Economic growth is determined by economic activity. In speeding up economic activity, energy comes into play as a strong indicator. This, therefore, makes crude oil and its products outstandingly important the world over. This has made economists to be of the opinion that there exists a strong correlation among the prices of oil, its value chains and economic growth – be it in any of its processed forms or not (Ghalayini, 2011). Crude oil in any of its processed forms is used in the generation of energy. In spite of the abundant oil reserves in Nigeria and its neighboring countries, they still have a low capability of energy generation with its inhabitants suffering the highest form of energy poverty in the world. In trying to bridge the gap, residents of urban areas litter every neighborhood with generators powered by fossil fuel, thereby endangering the environment. It is, yet astonishing that for a region naturally endowed with rich fossil fuel and abundant sources of renewable energy to be suffering energy poverty (Ifediora, 2020; Njiru & Letema, 2018). It is obvious that the scramble for fossil fuel increases its demand in Nigeria and thus it’s pricing too.
Petroleum has its value chain products which include premium motor spirit (PMS) literally known as petrol, dual purpose kerosene (DPK) known as kerosene, automotive gas oil (AGO) known as diesel, cooking gas, bitumen etc, which are used both domestically for personal consumption and for industrial production of goods and services (Amagoh, Odoh, & Okuh, 2014; Eregha, Mesagan, & Ayoola, 2015). It is of note that the international oil price affects the domestic pricing of its products. This is because the domestic pricing of its products has been under the control of the government. The government therefore intervenes in the market, to influence the domestic market prices (Eregha et al., 2015; A. Iwayemi & Adenikinju, 2001). The interventions is termed fuel subsidy, which according to Majekodunmi (2013) makes Nigerians to pay less for petroleum products consumption; thus, ensuring they are protected from the international price volatility of crude oil viz-a-viz its value chains – PMS (petrol), AGO (diesel) and DPK (kerosene). Despite the availability of subsidy and a bridging fund, PEF (Petroleum Equalization Fund), there still exists petroleum pump price disparity among the different regions and states in Nigeria (Ozo-Eson & Muttaqa, 2016). Though this programme is popular in most countries that produces oil. Evidence abound that most successful countries usually take phased and gradual approach to its removal or not. As a result of in-depth and evidence-based researches before the policy formulation, effective communication and fair level of trust between government and citizens are built and sustained which guides its gradual removal (International Institute for Sustainable Development, 2012).
Nigeria has refineries that are able to give a refined daily output of about 445,000 petrol barrels. This volume of production should be adequate to take care of the daily domestic consumptions in addition to a surplus for exports. Unfortunately, despite the production capacity, the investments and the attendant negative implications on balance of payments and capital expenditures, Nigeria is by the day, becoming a large net importer of petroleum products. Nigeria’s international financial market keeps bleeding; her exchange rate continues to weaken with the naira continually weakening against all known major currencies (Adelabu, 2012; Majekodunmi, 2013). Owing to this dismal outing of the economy, many businesses are unable to cope doing business in Nigeria, hence they are closing shops (Onyeizugbe & Onwuka, 2012). It is, therefore, certain that the pressure on government expenditures and balance of payment makes each government to tarry with the pump pricing of petroleum products (Table 1), to enable it make available more money to cover its expenditure profile.
Since the ongoing debate for the government to allow for the total deregulation of the oil industry, each successive government has been faced with strong resistance each time they remove fuel subsidy. The government, therefore, has continued to channel funds that should be used for infrastructural development to payment of oil subsidy. Every incoming administration, while pledging transparency in the execution of fuel subsidy, has identified the lack of transparency and corruption in the administration of fuel subsidy as the reasons for not fixing the nations refineries and poor growth of the economy.
With each government’s inability to get the refineries working despite huge maintenance, operating and overhead costs, Nigeria as a major oil producing country still imports refined fossil fuel for its domestic consumption needs. The refining sector obviously is avoided by investors citing unfriendly pricing as an excuse, leaving fuel marketers with low margins that had to force the government into increased subsidy payments that really hurt the economy (Balouga, 2012).
While crude oil price fluctuations on the growth of the economy is transmitted via demand and supply channels, increases in international price of crude oil are transmitted into the Nigerian domestic economy through domestic prices of petroleum products (Awunyo-Vitor, Samanhyia, & Addo Bonney, 2018; Jiménez-Rodríguez* & Sánchez, 2005). Petroleum products being a major source of productive sector inputs in the Nigerian economy, increase in prices do have effects on the country’s economic growth. Therefore this study explores the effect of petroleum price increments on economic growth of Nigeria.
Table-1. Trend and history of fuel price changes in Nigeria.
| Name of Head of states / President | Year |
Price variation |
| Gen. Yakubu Gowon | 1973 |
6k to 8.45k |
| Gen. Muritala Muhammed | 1976 |
8.45k to 9k |
| Gen. Olusegun Obasanjo | Oct 1,1978 |
9k to 15.3k |
| Alhaji Shehu Shagari | Apr 20,1982 |
15.3k to 20k |
| Gen. Muhamadu Buhari (Stable price) | Dec.1983-Aug.1985 |
15.3k to 20k |
| Gen. Ibrahim Babangida | Mar 31, 86: |
20k to 39.5k |
| Gen. Ibrahim Babangida | 10-Apr-88 |
39.5k to 42k |
| Gen. Ibrahim Babangida | 1-Jan-89 |
42k to 60k |
| Gen. Ibrahim Babangida | 6-Mar-91 |
60k to 70k |
| Chief Ernest Shonekan (82 days in power) | 8-Nov-93 |
70k to N5 |
| Gen. Sani Abacha-: (Price dropped) | 22-Nov-93 |
N5 to N3.25k |
| Gen. Sani Abacha | 2-Oct-94 |
N3.25k to N15 |
| Gen. Sani Abacha (Price dropped) | 4-Oct-94 |
N15 to N11 |
| Gen. Abdusalam Abubakar | 20-Dec-98 |
N11 to N25 |
| Gen. Abdusalam Abubakar (Price dropped) | Jan 6,1999 |
N25 to N20 |
| Chief Olusegun Obasanjo | 1-Jun-00 |
N20 to N30 |
| Chief Olusegun Obasanjo (Price drops) | 8-Jun-00 |
N30 to N22 |
| Chief Olusegun Obasanjo | 1-Jan-02 |
N22 to N26 |
| Chief Olusegun Obasanjo | June, 2003 |
N26 to N42 |
| Chief Olusegun Obasanjo | 29-May-04 |
N42 to N50 |
| Chief Olusegun Obasanjo | 25-Aug-04 |
N50 to N65 |
| Chief Olusegun Obasanjo | May 27, 2007: |
N65 to N75 |
| Alhaji Umaru Musa Yar' Adua- (price drops) | June, 2007: |
back to N65 |
| Dr. Goodluck Ebele Jonathan (New year present)-: | 1-Jan-12 |
N141 |
| Dr. Goodluck Ebele Jonathan (forced by Labour strike) | 17-Jan-12 |
N97 |
| Muhamadu Buhari | 2016-2017 Dec |
N97 to N145 |
| Muhamadu Buhari (Price not stable) | 2017 Nov-till Feb. 2018 |
N145 to N350 and above |
| Muhamadu Buhari (Relatively stable price) | 2018 March till Date |
N145 and above |
Note: N = Naira, k = kobo.
2. LITERATURE REVIEW
There are researchers whose arguments have been in support of pump price of petroleum products impacting on economic growth (Eregha et al., 2015; Nwaoha, Onwuka, Obisike, Yahaya, & Nwambe, 2018; Orlu, 2018). While Orlu (2018) using ECM found that premium motor spirit prices impact negatively on economic growth, he argued that the increase in the price of premium motor spirit will negatively affect production by firms thus reducing gross domestic product (GDP) growth. Furthermore, there are researches supporting that fuel price changes does not positively impact the Nigerian economy even though these prices are fallout of exchange rate fluctuations (Arinze, 2011; A Iwayemi & Fowowe, 2011; Nkomo, 2009). Arinze (2011) in studying the effect of petroleum product prices on inflation in Nigeria, found that petroleum product prices impacted positively and significantly on inflation in Nigeria. They advised the Nigerian government to diversify its economy away from oil. Ozo-Eson and Muttaqa (2016) in studying the pricing of petroleum products in Nigeria, argued that reviving the refineries will promote competition and become beneficial to Nigeria. He wondered why the pricing of premium motor spirit (PMS), dual purpose kerosene (DPK) and automotive gas oil (AGO) take center stages in Nigeria’s fuel pricing debates, with liquefied petroleum gas (LPG) pricing getting less mention in the discussions. He advised on the importance of LPG regarding its environmental benefits of weaning consumers from fuel wood to gas for domestic uses.
Wale-Awe and Sulaiman (2020) examined the effect of PMS pricing on inflationary dynamics in Nigeria for the period 1980-2018. Their result showed the existence of inflationary tendencies occasioned by PMS price increase and absence of causality between PMS pricing and inflation in Nigeria. They hence called for the aligning of wage rate and pricing of PMS for economic stabilization. Also Ocheni (2015) studied the impact of fuel price increase on the Nigerian economy using survey method. The study found that a significant relationship between increases in fuel prices and economic growth. Accordingly, food security is hampered by this. He therefore recommended for the speedy reinvigoration of the refineries, and removal of subsidy once this is done.
Hassan and Meyer (2020) in analysing the non-linear effect of petrol price changes on inflation in South Africa, argued that short run price increase does not impact significantly on economic growth and inflation, meaning that the continued increases in the price of petrol have had negative but significant impact on economic growth and inflation. Petrol price can impact on GDP negatively (Cavalcanti & Jalles, 2013). In addition, some researches argue that if petrol price is caused by global scale economic growth, it can cause a decline in GDP while increasing inflation (Cologni & Manera, 2008; Peersman & Van Robays, 2012).
Various government regimes in Nigeria always point at the international price of crude as the reason for the incessant domestic price changes of petroleum products. Hence, some literatures abound that x-rays the effects of oil prices on growth of the economy. Akinleye and Ekpo (2013) is of the opinion that oil revenue shocks marginally raises price levels in the short run and in the long run impedes growth of the economy. Tang, Wu, and Zhang (2010) with data from 1998–2008, found that petrol increases negatively impacts on economic growth while having a positive relationship with inflation in Chinese economy. However, it was found by the researchers that there is a negative effect on output occasioned by petrol price increases and inflation. Chang, Jha, Fernandez, and Jam’an (2011) studied oil price fluctuations and macroeconomic performances in 17 Asian and Oceanic economies using GDP, inflation and unemployment. They found the existence of a negative impact only in the short run. Popp, Oláh, Farkas, Lakner, and Máté (2018) in their study titled the effect of bioenergy expansion: food, energy, and environment found that economic growth and inflation have a non-linear relationship with petrol price changes while causality runs from petrol price to economic growth.
Ghalayini (2011) agreed to the fact that there is usually a positive effect of increase in oil prices on oil exporting nations with an opposite effect in nations that import oil. In trying to confirm the results of Papapetrou (2001) in Greece, Lardic and Mignon (2006) and Roeger (2005) using a number of European countries as case study, analysed the impact of changes of petrol prices on the economic performance of developed countries from 1980 to 2011, Katircioglu, Sertoglu, Candemir, and Mercan (2015) using samples from 26 OECD countries confirmed the existence of a relationship between GDP, inflation and employment with petrol prices negatively impacting on GDP.
3. METHODOLOGY AND EMPIRICAL MODELLING
3.1. Data Sources and Description
Time series secondary data from 1981 to 2019 was used in this analysis. All the variables used in this study are sourced from various editions of the Central Bank of Nigeria (CBN) and National Bureau of Statistics (NBS) publications. The rate of growth of gross domestic product was estimated using simple production function transformed into the Cobb Douglas production function. Descriptive statistics, Augmented Dickney-Fulller (ADF), Johansen’s cointegration, Error correction (ECM) mechanism and the Granger causality were employed in analysing the data. Using ADF, stationarity of the time series was determined, as it is a more expedient procedure in examining time series data. To prevent loss of observation as against ADF test because of its non-parametric method, 1988 Phillips-Perron unit root test was also applied. This method recognizes the lagged difference terms in the dependent variables by allowing heteroskedasticity error terms possibility, hence maintaining a correlation of higher order (Awunyo-Vitor et al., 2018; Hamilton, 2009). We therefore specify a lag model. The model will show how the changes in fuel price affect GDP. The three products PMS, AGO and DPK were adopted because they are the most commonly used directly or indirectly by every household in Nigeria. Exchange rate became the control variable. Economic growth is proxied by growth rate of gross domestic product.
3.2. Theoretical Framework
The endogenous growth theory forms the theoretical underpinning of this study. Van Zon and Yetkiner (2003) employed energy as input in the intermediate goods sector. As modified by Rebelo (1991) and Barry (1996) the endogenous growth model in this case consumables segment of the economy uses energy as an input capital. The simple production function is thus:
Assuming Q to be real output (Economic growth or GDP), K is total capital - capital here includes the prices of the petroleum products (PMS, DPK and AGO), and L is index of labour input. Thus, if Labour productivity is a dynamic measure of economic growth, competitiveness, and living standards within an economy, hence it is a revealing indicator of several economic indicators. If we mathematically derive it as.
Therefore, Output measure = Net output, which is the value added by the process, i.e. value of outputs – (less) value of intermediate inputs, all valued in monetary terms. Therefore, L is index of labour input, here represented by (EXR).
We transform it into a linear function in (3) as,
PMS is the domestic price of premium motor spirit; DPK is the domestic price of dual purpose kerosene; AGO is the domestic price of automotive gas oil, EXR is the rate of exchange of Naira to the US dollar while, ‘ect’ represents the residual adjustment and ‘u’ is the stochastic error term.
Transforming this (4) into lag model, then we have (5) thus;
Where in (5), all the variables remain as explained in (4), while log is the logarithm value of the variables, β0 is the constant of the model, β1 - β5 are all slopes of the estimates, t is the time (yearly trend) and t-1 is the yearly lag period (one yearl0.
3.3. Model Specification and Justification
This study is about the relationship or impact of domestic fuel price and growth of Nigerian economy using PMS popularly known as fuel, DPK popularly known as kerosene and AGO popularly known as diesel as major variables since they are the most commonly used in Nigeria. Exchange rate is used as a control variable of labour. These will be used in testing the hypothesis of the model.
4. ESTIMATION AND RESULTS
Descriptively, the statistics of the model variables is presented in Table 2. Our data being an annual series data, with 39 observations representing from 1981-2019 year period, the highest and lowest values of Ygt (economic growth) were 15.33 and -13.13. The price of automotive gas oil (AGO) and dual purpose kerosene (DPK) peaked at Naira 245.00 and Naira 200.00 per liter respectively in the year 2017. A close look at the price adjustments of the products – PMS, AGO and DPK, shows that the prices have been on a steady increase. For example, while PMS grew from Naira 0.15 to Naira 145 per liter within the period, AGO grew from Naira 0.11 to Naira 245 per liter within same period. The exchange rate of the Naira to the United States dollar is not left out. The weakening strength of the Naira when compared to other currencies, especially the US dollar can be attributed to the import dependent nature of Nigeria. The substantial values of the difference between the maximum and minimum values of the variables indicate how the variables spread out from the mean.
Table-2. Descriptive statistic.
| Variable | Ygt |
PMS |
AGO |
DPK |
EXR |
| Mean | 3.150 |
45.271 |
60.158 |
47.166 |
86.769 |
| Median | 4.196 |
22.400 |
21.000 |
17.500 |
22.051 |
| Maximum | 15.329 |
145.000 |
245.000 |
200.000 |
320.235 |
| Minimum | -13.128 |
0.150 |
0.110 |
0.110 |
0.610 |
| Std. Dev. | 5.467 |
48.656 |
79.035 |
64.524 |
95.110 |
| Skewness | -0.866 |
0.810 |
1.294 |
1.463 |
1.010 |
| Kurtosis | 4.635 |
2.426 |
3.399 |
3.839 |
3.176 |
| Jarque-Bera | 9.224 |
4.795 |
11.139 |
15.059 |
6.682 |
| Probability | 0.010 |
0.091 |
0.004 |
0.001 |
0.035 |
| Sum | 122.841 |
1765.574 |
2346.160 |
1839.460 |
3384.005 |
| Sum Sq.Dev. | 1135.921 |
89960.190 |
237366.3 |
158209.3 |
343744.6 |
| Observation | 39 |
39 |
39 |
39 |
39 |
The standard deviation from the mean value is moderately good. The values of PMS (premium motor spirit), AGO (automotive gas oil), DPK (dual purpose kerosene) and EXR (exchange rate) are all positively skewed. While AGO and EXR can be said to be mesokurtic (values approximately 3), PMS is platykurtic (2.4<3), DPK is Leptokurtic (3.8˃3) cetirus paribus. The probability values of all the variables are less than 0.05 with exception of PMS which is 0.091. This means that the probability that Jarque-Bera statistic exceeds in absolute terms the observed value under the null hypothesis is rejected for normal distribution of the variables Ygt, AGO, DPK and EXR, and the reverse for PMS. However, the kurtosis values of all the variables are not so much peaked, indicating the absence of an outlier, cetirus paribus.
Table 3 gives unit root tests output conducted under the variables using Akaike Information Criterion (AIC) automatic lag selection on the differenced value of the variables at both the level and first differences of the lagged series. Both the Augmented Dickey-Fuller (ADF) and Phillips-Perron (PP) methods of unit root test unanimously agreed to all the variables being I(1) stationary.
Table-3. Stationarity test.
Variable |
Unit root test statistic |
5% Critical value |
Integration order |
|||
ADF |
PP |
ADF |
PP |
ADF |
PP |
|
EXR |
-4.194 |
-4.201 |
-2.943 |
-2.943 |
I(1) |
I(1) |
PMS |
-6.198 |
-14.387 |
-2.946 |
-2.943 |
I(1) |
I(1) |
AGO |
-5.229 |
-5.230 |
-2.943 |
-2.943 |
I(1) |
I(1) |
DPK |
-5.507 |
-6.231 |
-2.946 |
-2.943 |
I(1) |
I(1) |
Ygt |
-10.077 |
-10.407 |
-2.943 |
-2.943 |
I(1) |
I(1) |
The Akaike information criterion (AIC) as shown in Table 4 recommends optimal lag length selection of lag 1, therefore, we adopt it for our estimations.
Table-4. Lag selection.
Lag |
LogL |
LR |
FPE |
AIC |
SC |
HQ |
0 |
-792.327 |
NA |
1.190 |
44.296 |
44.516 |
44.373 |
1 |
-702.990 |
148.894* |
3.390* |
40.722* |
42.041* |
41.182* |
2 |
-688.046 |
20.756 |
6.440 |
41.280 |
43.700 |
42.125 |
3 |
-661.877 |
29.077 |
7.620 |
41.215 |
44.734 |
42.444 |
The Johansen cointegration result output is presented below in Table 5. The results indicates that both the trace statistic and Max-Eigen statistic confirms the existence of three cointegrating equations among the variables. This is at the point in which the 5% critical values is less than both the Trace and Max-Eigen statistics. The critical values is less than the trace statistic in the following values: 69.819, 47.856 and 29.797 respectively. Also, the Max-Eigen Statistic is greater than the critical value at points 33.877, 27.584 and 21.132 respectively. This confirming a cointegrating relationship between the variables being similar results as observed by Papapetrou (2001); Hassan and Meyer (2020). Also from the normalized cointegration coefficients, it is obvious that in the long run the price of premium motor spirit (PMS) and automotive gas oil (AGO) will positively affect the growth of the economy, while the prices of dual purpose kerosene and exchange rate will negatively affect the growth of the Nigerian economy, cetirus paribus. Hence we reject the null hypothesis of no cointegration as against the alternative of a cointegrating relationship in the model.
From Table 6, ECT is negative, meaning it is rightly signed and non-explosive. That is to say that the previous year’s deviation from long-run equilibrium is corrected in the current period at an adjustment speed of 53%. However, a percentage change in the price of premium motor spirit, (PMS), dual purpose kerosene, (DPK) and exchange rate, (EXR) is associated with a 0.011%; 0.038% and 0.018% increase in economic growth respectively, cetirus paribus. Also a percentage change in the price of automotive gas oil, (AGO) is associated with a 0.002% decrease in economic growth, all things being equal. This means that for every unit (1%) increase in the price of automotive gas oil, (AGO) there will be a reduction of 0.002% in economic growth while a unit increase in the price of premium motor spirit (PMS), dual purpose kerosene (DPK), and exchange rate (EXR) causes the economy to grow by 0.011%, 0.038% and 0.018% respectively. The value of R2 (R squared) which is 0.574 is an indication that about 57.4% of the changes in the level of economic growth in the country are explained by the pump price of petroleum products and exchange rate within this study timeframe. This result supports the findings of Hassan and Meyer (2020) and Du, Yanan, and Wei (2010) who claims that petroleum prices impact on economic growth, though in the latter’s case it significantly affects economic growth.
Table-5. Cointegration test output.
| Hypothesized No of CE(s) | Trace Statistic |
0.05 Critical Value |
Max-Eigen Statistics |
0.05 Critical Value |
| None * | 108.922 |
69.819 |
41.299 |
33.877 |
| At most 1 * | 67.622 |
47.856 |
34.412 |
27.584 |
| At most 2 * | 33.210 |
29.797 |
21.849 |
21.132 |
| At most 3 * | 11.361 |
15.495 |
8.237 |
14.265 |
| At most 4 * | 3.125 |
3.841 |
3.125 |
3.841 |
| Normalized cointegrating coefficients (standard error in parentheses) | ||||
| YGT | LOG(PMS) |
LOG(DPK) |
LOG(AGO) |
EXR |
| 1.000 | -1.888 |
8.688 |
-8.445 |
0.065 |
(2.842) |
(3.705) |
(3.154) |
(0.027) |
|
Table-6. VECM dynamics (Ygt as dependent variable).
Variables |
Coefficient |
T-Statistics |
Probability |
D(PMS(-1)) |
0.014 |
0.036 |
0.319 |
D(DPK(-1)) |
0.038 |
0.065 |
0.587 |
D(AGO(-1)) |
-0.002 |
0.038 |
-0.065 |
D(EXR(-1)) |
0.018 |
0.024 |
0.745 |
ECTt-1 |
-0.535 |
0.146 |
-3.665 |
C |
0.516 |
1.084 |
0.476 |
| R2=0.574 ;Adj R2=0.323 ;F-Statistic =2.282 | |||
Table 7 presents the causal relationship and direction of causality among the variables. The study employed F-Statistics constructed under no causality null hypothesis. This enabled us to measure the causality direction among the variables for which probabilities are less than 5%. At probabilities of less than 5%, we accept the null hypothesis and reject the alternative hypothesis. At this point, the null hypothesis is significant. From the Table 7 below, DPK granger causes PMS, AGO and EXR, while AGO granger causes PMS. In all these cases, the probability value is less than 5%. Literarily, this means that the price of DPK will help in predicting the prices of AGO and EXR. This is same for AGO and PMS. Therefore increase in the pump price of DPK will cause the pump price of PMS, AGO and EXR to increase too. This is also obtainable when the pump price of AGO increase as it pushes up the pump price of PMS. This result lays credence to the study by Peersman and Van Robays (2012).
Table-7. Granger causality.
| Null Hypothesis | F-Statistic |
Prob % |
Decision |
| DPK Granger Causes PMS | 13.690 |
0.001 |
Accept |
| AGO Granger Causes PMS | 18.274 |
0.000 |
Accept |
| DPK Granger Causes AGO | 5.987 |
0.020 |
Accept |
| DPK Granger Causes EXR | 4.353 |
0.044 |
Accept |
Table 8 provides result of the diagnostic tests and from it we conclude that the model does not exhibit serial correlation since the value of its probability 0.077 ˃ 0.05. However, the probability value of the Normality test showed that it is significant at 0.000, hence we carried out the test for Heteroskedasticity. The test indicated that all the variables exhibit normal distribution as shown by the normality test thus making us not to reject the null hypothesis. The chi-square coefficient of the heteroskedasticity test is insignificant meaning that our model is heteroskedased.
Table-8. Diagnostic tests.
| Type of test | Prob. |
| Serial correlation LM test | 0.076 |
| Normality test | 0.000 |
| Residual heteroskedasticity test | 0.603 |
5. CONCLUDING REMARKS AND POLICY IMPLICATIONS
In this study, we have empirically investigated the impact of petroleum pump price adjustments on economic growth in Nigeria for the period 1981-2019. In the course of our study, we find that pressure on government expenditures and balance of payment makes each government regime to tarry with the pump pricing of petroleum products, to enable it make available more money to cover its expenditure profile. However, Nigeria, despite being a crude exporter, is daily becoming a net importer of refined fossil fuel for its domestic use.
The empirical results show that a percentage increase in economic growth causes the price of premium motor spirit (PMS), dual purpose kerosene (DPK) and exchange rate (EXR) to increase by 0.011%, 0.038% and 0.018% respectively. Also a percentage change in the price of automated gas oil (AGO) is associated with a 0.002% decrease in economic growth. Also about 57.4% of the changes in the level of economic growth in the country are explained by the pump price of petroleum products and exchange rate within this study timeframe. The previous year’s deviation from long-run equilibrium is corrected in the current period at an adjustment speed of 53%.
However, the prices of PMS, AGO and DPK does not granger cause economic growth in Nigeria within the period under this study. This is same for exchange rate. Instead DPK granger causes PMS, AGO and EXR while AGO granger causes PMS. Given these results, it is advisable for government to pursue its growth policies independent of petroleum pump prices. Obviously using fuel pump price as a policy to influence economic growth is ineffective. To forestall this, efforts should be made to stop the importation of refined fossil fuel. This should be by way of building new refineries and revamping existing ones. This will in turn save the country huge foreign exchange while also creating jobs.
Funding: This study received no specific financial support. |
Competing Interests: The authors declare that they have no competing interests. |
Acknowledgement: All authors contributed equally to the conception and design of the study. |
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